Euro area saw a noticeable decline in median rate of perceived inflation in July 2024 over the previous 12 months, which fell to 4.1 per cent from 4.5 per cent in June, according to the European Central Bank (ECB) Consumer Expectations Survey. Despite this decline, inflation expectations at both the one-year and three-year horizons remained below the perceived past inflation rate.

Notably, median expectations for inflation over the next 12 months remained steady at 2.8 per cent for the third consecutive month, following a drop in May to the lowest level since September 2021. Meanwhile, median expectations for inflation three years ahead increased slightly by 0.1 percentage points in July, reaching 2.4 per cent, as per the survey.

Uncertainty about inflation expectations over the next 12 months remained at its lowest level since February 2022, when Russia invaded Ukraine, indicating a stabilisation of consumer sentiment. Interestingly, the survey highlighted that inflation perceptions and expectations were relatively consistent across different income groups. However, younger respondents (aged 18-34) continued to report lower inflation perceptions and expectations compared to older respondents (aged 35-54 and those aged 55-70).

The survey also indicated a decrease in consumer nominal income growth expectations, which fell to 1.1 per cent in July from 1.4 per cent in June. This decline in income expectations was observed across all age and income groups, with the lowest two quintiles experiencing the most pronounced decrease. Additionally, perceptions of nominal spending growth over the previous 12 months declined further to 5.4 per cent in July, down from 5.8 per cent in June and 5.9 per cent in May. This marks a continuation of a sustained decline in spending growth that began in March 2023. Expectations for nominal spending growth over the next 12 months also decreased slightly, falling to 3.2 per cent from 3.3 per cent in June, the lowest level since February 2022.

Economic growth expectations for the next 12 months turned increasingly negative in July, with the forecast dropping to minus 1 per cent from minus 0.9 per cent in June. Despite this pessimistic outlook for economic growth, expectations for the unemployment rate 12 months ahead remained unchanged at 10.6 per cent, the lowest level recorded since the start of the series. This suggests that consumers expect the labour market to remain relatively stable, with the future unemployment rate anticipated to be only slightly higher than the current perceived rate of 10.1 per cent.

However, the survey also revealed some concerns within the labour market. Quarterly data indicated that unemployed respondents reported a decrease in their expected probability of finding a job within the next three months, which fell to 26.6 per cent in July from 27.5 per cent in April. Additionally, employed respondents expressed an increased probability of job loss over the next three months, with the figure rising to 8.9 per cent in July from 8.7 per cent in April.

Fibre2Fashion News Desk (DP)